2012 is giving us a wild ride – there have been numerous interest rate cuts to get things moving along, the usual spin from politicians to convince us how well (or badly) we were going and a carbon tax many thought would be the undoing of the economy. Meanwhile the Europeans were busy arguing about who owed what and who was going to pick up the tab. Certainly all these factors have all had an impact, but if we swirl around the tea leaves a little and look more closely about what’s really going on, going down and is yet to come, things are actually ticking over quite nicely.
While “rumours of the mining industry’s demise were exaggerated” as the RBA reported in September, in reality the resource boom is motoring along in cruise control. Iron ore may be at a 3 year low and coal prices had come off the boil, but coal exports from NSW have increased sharply and LNG exports are in full swing. BIS Shrapnel tends to agree, predicting that the mining boom has quite a way to run with their economists expecting it to peak 2014. So while certain major mining projects have been shelved, the RBA nonetheless is bullish noting that the country’s leading iron ore producers have achieved record levels of investment. They also feel the strong performance of the mining sector will underpin the acceleration of the entire Australian economy.
And who’ll be soaking up all these resources? On 7 September the Chinese government rubber-stamped over $150 billion in infrastructure spending, with the highlights being 25 urban rail projects, 13 highway construction projects and much more.
Relief for Australian borrowers came as a sluggish economy and modest inflation allowed the RBA to cut rates in April, June and October to the levels last seen in October 2009. Yet each time the RBA has dropped rates, the major banks have managed to spoil the party for some by either delaying the savings or not passing on the full measure of the cuts.
Looking further afield, US consumer confidence jumped in September to 70.3 due to a jump in job hiring data, that’s its highest level since February 2012. Even the housing market is showing a moderate recovery, a welcome reversal of recent trends, with national house prices increasing 1.2% in July recording the second straight year-over-year gain.
Here in Australia, unemployment is mixed with the mining states WA and QLD clearly performing better, while NSW and Victoria are worse off, equating to a national figure of 5.1 % in August 2102. Compare that with rates in of 8.3% in the US, 11.4% across the Euro-zone, 15.5% in Ireland and 25.1% in Spain, so things for us here in Australia aren’t to bad.
Of particular relevance to us at Finlease are estimates by the RBA that the volume of new capital investment will increase by 3.6% during the June quarter. Expectations are that total private investment will grow 7.8% for 2011/2012. Looking ahead, the big driver will be mining investment with BIS Shrapnel predicting annual mining investment will exceed $80 billion by 2015. Construction and plant and equipment will rise by 75% to nearly $60 billion by 2015/16.
So while Wayne Swann’s budget numbers may have gone slightly adrift due to a fall in commodity prices, politics aside, we at Finlease have a fairly positive outlook for the year ahead.